FOREIGN DIRECT INVESTMENT: A BRIDGE TOO FAR

Attracting FDI, a key enabler of export performance, has been a challenge for Sri Lanka. As exports and FDI are a platform for productivity growth, Sri Lanka has missed out on new technologies and know-how typically associated with FDI.

- BY Rauff Reffai

Prof. Razeen Sally (a Sri Lankan Resident Singaporean at NUS) in an interview to Daily Mirror In June this year set the alarm bells when he observed:

(1)If the pace of growth is not sustained (i.e. 5 percent GDP) the economy will slide into recession and default (mercifully that had not happened) or in the alternative

(2)The economy needs to sustain a growth path beyond the IMF programme, and make FDI Flows possible by integrating into the Global Value Chains (GVC).

Garments have not made us rich , nor has Sri Lanka succeeded in climbing the manufacturing Ladder. The work Force is still stuck in semi skilled and unskilled labour. Low end manufacturing and Inefficient Agriculture

Then the next hurdle to clear is to create a work force that supports a Niche base of Critical Industries, the Think Tank Centre for Poverty Analysis Identifies in its latest Report (CEPA 2024) that : Tourism, Agriculture (Value added) Manufacturing and ICT as these Niche Sectors.

Our ambitious target for Merchandise Exports for Sri Lanka is projected to be US$ 25.0 billion by 2030, while we are presently confined to US$3.0 to 5.0 million on average (US Trade Stats 2025). The size of the FDI pie is US$ 860.0 billion (2023) of which US$ 31.0 billion have flown (2024) into structurally weak economies, including small developing istand countries (UNCTAD 2024).

What is shocking is that we have registered a steady slide in the very measures which Investors find it attractive for drawing in FDI into the targeted sectors/sub sectors.

Our Governance effectiveness Index according to World Bank had slid from 112 (2010) to 127 (2023) while India (70) and Vietnam (95) are well ahead of us. In terms of corruption perception Index our rankings have slid from 94 (2010) to 121 (in 2024).